IR35 is a set of rules introduced by HMRC to combat tax avoidance by contractors, freelancers and other self-employed workers. It’s important to understand IR35 and how it applies to you, as getting it wrong can result in hefty fines and backdated taxes.
This guide will provide an overview of IR35, including common reasons why contractors may be inside the scope of IR35.
What is IR35?
IR35, also known as Intermediaries Legislation, is a set of rules designed to prevent contractors from avoiding tax by using an intermediary (such as a limited company) to provide their services. If IR35 applies to a contractor’s engagement, they will be taxed as if they were an employee of the end-client.
Who does IR35 apply to?
IR35 applies to contractors who provide their services through an intermediary, such as a limited company. It does not apply to employees or self-employed individuals who do not use an intermediary.
Common reasons why contractors may be inside IR35
1. The contractor is not providing services to the outside world: If the contractor is not providing services to anyone outside of the end-user, such as other clients or customers, then they are likely to be inside IR35. This is because it indicates that the contractor is not genuinely in business on their own account.
2. Control: If the end-client has significant control over how, when and where the contractor performs their work, this is an indication that the contractor could be inside IR35.
3. Substitution: If the contractor cannot provide a substitute to carry out the work on their behalf, this is an indication that they could be inside IR35.
4. The contractor is closely integrated into the end-user’s organisation: If the contractor is closely integrated into the end-user’s organisation, such as being provided with the same benefits as an employee, then they are likely to be inside IR35. This is because it indicates that the contractor is not genuinely in business on their own account.
Conclusion
IR35 is a complex area of tax law, and it’s important to understand it and how it applies to you. Contractors should assess their working arrangements to determine whether or not they are inside IR35, as getting it wrong can result in hefty fines and backdated taxes. This guide has outlined some of the common reasons why contractors may be inside the scope of IR35.
If you outside of IR35?
If you would like your contract reviewed to understand your IR35 status, please visit our IR35 Contract Review page.
